Japan - April 2023

S P OT L I G H T
Savills Research

Japan Retail

Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

Japan RetailMarket recovering rapidly butwith road bumps ahead• In 2H/2022, average 1F rentsin Tokyo have seen slight dips.
However, this was partly due
to a decline in the number ofprime units listed, as they appear
to have been taken up, andthe overall market has seen a
gradual decline in vacancies.
• In regional markets, average 1F
rents have also seen a decline,
which reﬂected a similar
situation to that of Tokyo,
and demonstrates increasing
demand.
• Transaction volumes in 2022
have surpassed those of 2021
by almost 10%, and moredeals in the retail sector are
expected. The sector will
likely attract more investors inthis environment of elevatedinﬂation and interest rates.
• While the luxury, discount,and daily essentials sectors
are performing well and are
expected to continue doing so,
mid-market retail is expected totake longer to recover.
• Although Japan has transitioned
to a post-pandemic state, officeattendance and the consequent
footfall in central business
districts still lag pre-pandemic
levels, which will impact thewider retail market.
• The effects of lifestyle changes
and paradigm shifts that
occurred during the pandemic,
such as an expansion in online
shopping, will likely linger, andretailers will need to continue
adapting to these changes.
• Inbound tourism has made arobust comeback, which will
provide a signiﬁcant boost to
related sectors.

TOKYO SUBMARKET RENTS
According to the semi-annual survey by theJapan Real Estate Institute (JREI) and BAC
Urban Projects, average asking rents for 1F
units in Tokyo have declined slightly by 1.3%
half-year-on-half-year (HoH), translating toa moderate increment of 2.4% year-on-year(YoY). Meanwhile, non-1F rents declined
marginally by 0.8% HoH but grew 4.5% YoY.
While there were some diﬀerences in termsof rental performance between submarkets,
vacancies have gradually been declining
overall, although there is still some notabledivergence between prime and non-prime
areas.
Japan has transitioned into a postpandemic state, characterised by the lifting ofrestrictions on going out and the resumptionof inbound tourism. At the ground level,
luxury brands have continued to do well, andprime locations have reportedly seen rental
growth. On the other hand, non-prime areasthat cater to mid-tier brands are still in aweaker position and will likely take more time
to recover.
The retail sector has certainly been a
beneﬁciary of the progress to a post-pandemicera, and more investors have started to show
growing interest in retail assets. At the sametime, it still faces some challenges across theboard. For instance, heightened material
and energy prices, as well as increasing
labour costs are expected to linger, which
will apply greater pressure on tenants, andmight aﬀect rental growth. Nonetheless, themarket sentiment has improved overall, andshould continue to do so going forward as moretourists come to Japan.

Ginza
Average 1F asking rents in Ginza dippedslightly by 2.1% HoH, but rose 3.2% YoY to
JPY77,500 per tsubo in 2H/2022, maintaining
a clear premium over other submarkets
in Tokyo. Meanwhile, non-1F rents haveincreased by 2.1% HoH and 6.9% YoY to
JPY34,100 per tsubo, and are on par withother submarkets.
Ginza’s position as the premier retail
district in Tokyo has not wavered throughout
the pandemic, when luxury brands thrived
with multiple new shop openings driven by
demand from the wealthy unable to travel
overseas. In the present post-pandemic era, themomentum of luxury brands has not slowed,
and vacant spots are virtually non-existent inprime locations. Indeed, the strength of theluxury industry can be seen when observing
the sales of Ginza Six, a department store
known for its concentration of luxury brands,
which hit a new record high in 2022, and were
10% higher than 2019, the previous record year.
Notable openings in 2H/2022 include Versace’s
new ﬂagship store along Harumi-dori, and
CHANEL Fine Jewelry along Namiki-dori.
Ginza has performed well and looks tocontinue doing so in the current market
environment. Other than luxury brands,
clinics and beauty-related services have also
continued to ﬁ ll vacancies on mid and highﬂoors, and the general recovery has also
slowly improved the outlook of restaurants in
Ginza, although night-time footfall still hassome room for improvement. Overall, given
the improving circumstances of the area,
there is little worry about rents seeing further
corrections.

GRAPH 1: Tokyo 1F Rents, 2008 to 2022
Ginza
Shinjuku
Average asking rent

Omotesando
Shibuya90
80
THOUSAND JPY / TSUBO

Summary

70
60
50
40
30
20
10
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source JREI, BAC Urban Projects, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/2

Japan Retail

Omotesando
Average 1F rents in Omotesando followed
a similar trend to that of Ginza, decreasing
2.2% HoH to JPY54,100 per tsubo, to anannual increment of 3.2%. Non-1F rents
saw a dip of 3.6% HoH and 4.2% YoY to
JPY34,600 per tsubo, losing its place as thesubmarket with the most expensive non-1F
rents by a small margin.
Omotesando is widely known for its
diverse range of fashion goods. However, anotable divergence persists in the submarket;
while the high-end luxury brands along themain street between Jingumae and Aoyama
have performed well, the more oﬀ beat young
fashion areas such as Meiji-dori and Cat
Street appear to still be suﬀering. Indeed,
lifestyle changes that manifested during
the pandemic and the absence of tourists
have negatively impacted these areas,
resulting in greater bifurcation, although
gradual recovery is expected in the current
post-pandemic society. At the same time,
Omotesando has also seen recovery in its
pop-up stores that were widely used formarketing toward younger customers.
Omotesando has seen vacancies slowly
decrease as the overall market sentiment
improves. Going forward, the submarket is
expected to broadly recover in the mid-term,
further aided by upcoming developmentsin the pipeline like the Jingumae 6-Chome
redevelopment project in mid-2023, andHarajuku Quest in 2025. In the meantime,smaller units should continue to see
improvement with more vacant units ﬁ llingup, although it might take some time forlarger units to recover.
Shinjuku
Average 1F rents in Shinjuku have seen
another consecutive increment, growing
1.4% HoH to JPY57,100 per tsubo, rising 5.7%

Japan has progressed to a postpandemic state, with domestic
demand and inbound tourism making
a strong comeback. While this willcertainly mean improvement for theoverall retail sector, there are roadbumps including the inﬂationary
environment and a shortage of labourthat will have an adverse impact,
especially on mid-market retailwhich may take longer to recover.
Nonetheless, retail assets will beneﬁt
from increasing popularity due totheir rental prospects.
YoY. Non-1F rents have likewise increased
4.2% HoH and 15.7% YoY to JPY34,700 per
tsubo, leapfrogging Ginza and Omotesando
to become the most expensive submarket inthis category.
Vacancies in Shinjuku have been slowly
declining, although they still remainmarkedly higher than pre-pandemic times.
The luxury sector has again taken centre
stage with its strong performance. For
instance, Isetan Shinjuku, known for housing
high-end luxury brands, has reported
record-high sales in FY2022, surpassing the

GRAPH 2: Tokyo Non-1F Rents, 2008 to 2022
Ginza
Shinjuku
Average asking rent

Omotesando
Shibuya

45

35
30
25
20
15
10
5
0
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

THOUSAND JPY / TSUBO

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source JREI, BAC Urban Projects, Savills Research & Consultancy

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previous high in FY2019 by more than 20%.
On the other hand, sales of the department
store Lumine, which specialises in fashion,
were 10% lower in 2022 than in 2019,
demonstrating the disparity in recovery.
Indeed, bifurcation still exists in thesubmarket. Retail on the east side of
Shinjuku station has reportedly seen greaterattention due to the ongoing construction
and redevelopment on the west side. In
addition, while the area south of Shinjukudori is performing well, the Kabukicho area
still exhibits noticeable amounts of vacancy.
Nonetheless, overall market conditions
appear to be more optimistic, with the largesite next to the station that used to house
Uniqlo appearing to have secured a new
tenant. Overall, the gradual upgrades that
Shinjuku has been adding, such as the Meijidori bypass in late 2022 to help smoothen
traﬃc ﬂow, look to improve the image and the
popularity of the area.
Shibuya
Average 1F asking rents in Shibuya declined
2.0% HoH and 5.8% YoY to JPY43,600 per
tsubo, and are the least expensive amongst
the four Tokyo submarkets. Non-1F rents
have seen a slight increment of 0.9% HoH and1.6% YoY to JPY32,200 per tsubo, and like 1F
rents, remain the least expensive.
Shibuya had a weaker presence of luxury
brands compared to the other Tokyo
submarkets, and its retail sector overall
saw the poorest performance due to thehigh concentration of restaurants and live
entertainment establishments. In the current
post-pandemic era, recovery is underway

Japan Retailwith the reported reopening of some live
entertainment establishments such as LINE
CUBE SHIBUYA. Nonetheless, leasing looks
to take more time, especially in subprime
areas like Inokashira-dori, and places
further away from the station that appear tobe suﬀering. Indeed, there have been reportsof tentative tenants cancelling openings insuch areas.
On a positive note, vacancies have beenslowly decreasing over the past year, although
they are still double 2019 levels. Furthermore,
shopping centres such as PARCO have
performed decently well, managing to hit
2022 revenue targets of JPY20 billion. Goingforward, Shibuya Sakura Stage is expected
to be completed in late 2023 and should
bring more attention to the southern side of
Shibuya station.

subject to the area and tenant in question.
In Osaka’s Shinsaibashi, rents moved inline with the overall regional market trend,with average asking 1F rents dipping 8.2%
HoH and 5.7% YoY to JPY39,400 per tsubo,and non-1F rents increasing a slight 1.2% HoH
and 3.1% YoY. The Midosuji area, known for
its line-up of luxury brands in the same vein
as Ginza, led the submarket in performance,with new developments in the area reported
to have already secured tenants. On the other
hand, the Shinsaibashi Shopping Arcade area
appears to still be lagging behind and has somenotable vacancies. Overall, while vacancies
have stopped climbing, it is expected that moretime will be needed for them to come down
closer to pre-pandemic levels. Nonetheless,the overall market sentiment is more positive,
especially in areas more dependent on inboundtourism such as Ebisubashi and Dotonbori
which have reportedly seen some new store
openings entering 2023.
In general, the return of inbound tourism
has impacted Nagoya’s Sakae lightly. The
submarket has seen 1F rents decrease 5.9%
HoH and 3.4% YoY to JPY22,500 per tsubo.
Overall, vacancy levels have declined slightly,
and market recovery appears to be abound,with an increasing number of shop rental
inquiries due to higher levels of footfall. At
the same time, like other submarkets, retail
involving general fashion appears to have
performed more poorly. For instance, Otsudori, which was known for its lineup of fashion
retail, has seen more drug stores take up
tenancy, and hence diluting the fashion imageof the street. Looking ahead, there are many
redevelopment projects in the pipeline in themain Sakae crossing vicinity, which should
bring more spotlight to the area. At the sametime, this could comparatively weaken thesouth side of Sakae, where Loft is expected toexit in mid-2023.

REGIONAL CITIES
Average 1F asking rents in regional cities
saw a decline of 6.5% both HoH and YoY to
JPY24,520 per tsubo. Non-1F asking rents
moved in the opposite direction, increasing
3.3% HoH and 5.1% YoY to JPY16,100 per
tsubo. Market conditions have improved
overall on the back of the transition toa post-pandemic state and the return ofinbound tourism, and vacancies have beenon the decline overall. Like Tokyo, many
regions appear to be experiencing somebifurcation, with prime locations doing
well and less prime locations performing
more poorly, although the general retail
environment has been steadily improving
in the post-pandemic era. Nonetheless,global economic headwinds stemming fromincreasing material and energy prices, on
top of the labour shortage in Japan, haveadded additional pressure on the overallretail sector, further thinning the margins oftenants. As such, rental increments are likely

GRAPH 3: 1F Rents in Retail Districts of Regional Cities, 2014 to 2022
Osaka Shinsaibashi
Fukuoka Tenjin
SapporoNagoya Sakae
SendaiAverage asking rent

40

THOUSAND JPY / TSUBO

35
30
25
20
15
10
5

2014

2015

2016

2017

2018

2019

2020

2021

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

1H

2H

2H

1H

2H

1H

0
2022

Source JREI, BAC Urban Projects, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

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Average 1F asking rents in Fukuoka
have increased 3.0% HoH and 6.1% YoY to
JPY24,200 per tsubo, although non-1F asking
rents saw another consecutive slight decline.
Fukuoka performed strongly even during
the pandemic, and its prime districts suchas Nishi-dori and the Tenjin 2-Chome area
have seen rental growth with few vacant lots
in sight. Indeed, some owners in the market
have reportedly been bullish and morereluctant to lower rents since mid-2022,
although this has led to some weakening
in locations such as the high ﬂoors oflarge shopping complexes. Going forward,
Fukuoka Daimyo Garden City, part of theTenjin Big Bang project, and the greater
return of inbound tourists should help tofurther increase footfall.
Sendai has seen 1F rents decline 11.1%
HoH and 6.6% YoY to JPY25,500 per tsubo.
The submarket can be divided into the
Sendai west exit area, which houses large
shopping centres, and the shopping arcadearea, consisting of the streets from Hapina
Nakakecho to Ichiban-cho. The bifurcation
between these two areas has persisted, withthe shopping arcade area seeing considerably
weaker performance than its counterpart.
Vacancy levels are still high overall, although
there are signs of gradual improvement
like new restaurants and fashion stores,
bolstered by the increased footfall. Overall,
the situation nonetheless remains subdued forthe shopping arcade area, which might further
lose its standing to upcoming developments
around Sendai station.
Sapporo’s 1F rents have seen a considerable
decline of 8.8% HoH and 25.1% YoY to
JPY15,500 per tsubo, although this decreasein asking rents is likely due to greater uptakeof prime units that were previously available
on the market. Indeed, aided by the returnof inbound tourism and vacancies have beenon the decline over the past year, although
they still remain signiﬁcantly higher thanpre-pandemic levels. Nonetheless, further
recovery is expected going forward, especiallywith the peak summer tourism season coming
up. The simultaneous large redevelopments
ongoing around the station are expected totemporarily shift attention away from thearea, but will likewise gravitate large amountsof traﬃc once they are complete.
INVESTMENT TRENDS
The results of the October 2022 semi-annual
survey conducted by JREI saw cap rates
compress slightly in a few areas over the lasthalf-year. In prime retail properties, cap rates
in Nagoya tightened 10 basis points (bps) to
4.7%, while other markets, including Ginza,
remained ﬂat. Meanwhile, for suburban retailproperties, Tokyo, Sapporo and Fukuoka
all tightened 10bps. In general, many areas
have seen a gentle compression of cap rates
over the past year, demonstrating greater
conﬁdence in the retail sector, especially now
that restrictions on going out have been liftedJapan Retailcompletely. It should be noted that actual
market cap rates could be as much as 100bps
lower than these surveyed cap rates.
One notable transaction that took place
between Q4/2022 and Q1/2023 was theacquisition of three retail properties in Shibuya,
Minato, and Fukuoka by FPG for JPY40 billion.
Acquisitions of properties located in prime
districts by domestic investors suggest thatsome have become more bullish on the retailmarket. Meanwhile, some J-REITs have been
shuﬄ ing assets, including Tokyu Land’s
Tokyu Plaza Ginza for JPY39 billion.
Japan transitioned into a post-pandemic
state, which should further boost footfall
around retail facilities. At the same time,
the country has also started to move awayfrom an era of zero-interest rates andthe new governor of the Bank of Japan is

expected to gradually normalise monetary
policies. According to preliminary data from
Real Capital Analytics, retail transactionsin 2022 have surpassed those of 2021 byalmost 10%, with transactional volumes ofaround JPY700 billion. The retail sector
will likely receive greater attention amidst
the inﬂationary environment and elevatedinterest rates as investors seek out retailassets with prospects of rental incrementson the back of stronger inbound demand,or regional properties with stable but highyields of 5% or more as a yield play.
POST-PANDEMIC RETAILENVIRONMENT
The pandemic broadly transformed someof the landscape of commercial real estate,
and even as society has progressed to a

GRAPH 4: Retail Property Investment by Region, 2009 to Q1/2023*
Tokyo
Osaka
Kanto (Ex-Tokyo/Yokohama)
Other

Yokohama
FukuokaKansai (Ex-Osaka)
Of which Tokyo (%) (RHS)

1,400

80%

1,200

70%
60%

JPY BILLION

1,000

50%
800
40%
600
30%
400

20%

200

10%

0

0%

Source MSCI Real Capital Analytics, Savills Research & Consultancy* Q1/2023 volumes are preliminary and is likely to be revised upwards. In principle, MSCI Real Capital Analytics
investment volumes do not include related-party transactions, such as those between a J-REIT and its sponsor.

TABLE 1: Selected Retail Transactions, announced Q4/2022 to Q1/2023

ANNOUNCEDPROPERTY

LOCATION

GFA(SQ M)

PRICE(JPY BIL)

DIRECT
CAP
RATE

BUYER

Dec 2022

Retail portfolio(3 properties)

Shibuya,Minato andFukuoka

6,300

40.0

-

FPG

Mar 2023

Tokyu Plaza Ginza(partial)

Chuo,
Tokyo

48,00039.0

2.5%

SPC of Tokyu
Land

Mar 2023

Aeon Mall
Wakayama

Wakayama
City,
Wakayama

95,000

16.8

5.1%

Aeon REIT

Oct 2022

Iias Kasugai

Kasugai,Aichi

70,00014.5

4.5%

Kenedix RetailREIT

Nov 2022

Ameyoko Center
Building

Taito,
Tokyo

7,000

7.7

-

Domestic
company

Source Press releases, MSCI Real Capital Analytics, Savills Research & Consultancy

5

post-pandemic state, many trends thatmaterialised over the past few years will
linger and have an impact on the market.
For instance, even though companies
are generally pushing for greater oﬃce
attendance, commuter traﬃc is estimatedto be as much as 20-30% lower than prepandemic times in some of Tokyo’s central
business districts, which has negatively
aﬀected the retail sector. While levels of
remote work are not as high when comparedto other western countries, hybrid work
systems are still prevalent, especially inTokyo, and will likely persist. They haveresulted in some lifestyle shifts, such as agreater amount of shopping done online,
and retail establishments will need tounderstand and adapt to these habitualchanges of the new era.
Luxury goods have continued to perform
strongly because of the heightened demand
from high-net-worth individuals that have
fared better throughout the pandemic.
Indeed, major department stores that housemany of these luxury brands across Japan
have performed exceptionally well leading up
to the country’s transition to a post-pandemic
state. For instance, in FY2021, Isetan
Shinjuku reported that more than 50% of its
sales were from the top 5% of its customers.
Furthermore, the return of inbound tourism
will further boost sales. On the other hand,
mid-market retail goods face more direstraits. Indeed, after bracing depressedfootfall during the pandemic, they now
have to combat an inﬂationary environment
which will likely be accompanied bysomewhat decreased discretionary
spending, even with some wage growthobserved. Elsewhere, discount stores ofreasonable quality, as well as essential goods
like supermarkets and drug stores are faring
well, and are expected to continue doing so
in the current inﬂationary environment.
Another factor that will have a signiﬁcant
impact on the market is the current labour
shortage. The pandemic led to extensive
layoﬀs in the retail industry, in addition toan exodus of foreign workers and students.
With market conditions rapidly recovering,
although many shops have looked to expedite
hiring, the shortage of available labour has
made it diﬃcult to do so. Indeed, the jobto-applicant ratios for sales, kitchen, andservice staﬀ have increased signiﬁcantly
over the past few months. Retail shops may
have to resort to shortening business hours
or raising wages in order to cope, which will
have an adverse impact on their bottom lines,
especially for businesses that have wafer-thin
proﬁt margins like lower-end restaurants.
For investors, elevated inﬂation andinterest rates should bolster investment
appetite for retail assets with prospects ofrental increments, and assets that have high,stable yields of 5% or higher, like suburban
shopping centres, will likely garner more
attention going forward.

Japan Retail

GRAPH 5: Job-to-applicant Ratio, 2020 to February 2023
Sales staff

Kitchen staff

Service staff

4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb

0.0

2020

2021

2022

2023

Source Ministry of Health, Labour and Welfare, Savills Research & Consultancy

GRAPH 6: Average Hourly Wages for Retail Staff, 2014 to March 2023
Cashier

Store Staff

Apparel Sales

1,150
1,100

JPY / HOUR

1,050
1,000
950
900
850

2014

2015

2016

2017

2018

2019

2020

2021

2022

Mar

Jan

Feb

1H

2H

2H

1H

1H

2H

1H

2H

1H

2H

1H

2H

2H

1H

1H

2H

1H

2H

800

2023

Source Jobs Research Center, Savills Research and Consultancy

OUTLOOK
The outlook for Japan retail in the postpandemic era is certainly more optimistic
than it was before, and further recovery
has been observed. Luxury goods havecontinued to perform strongly on the back ofa wealthy clientele, mostly domestic, while
the return of foreign travellers has helped
to boost retail sales, especially in areas
dependent on inbound tourism, and should
continue improving strongly.
At the same time, there are multiple hurdles
for the retail sector as a whole, and more sofor some categories than for others. Midmarket fashion retail and restaurants, which
although they have improved over the past few
months, are still performing relatively poorly,
and prospects for recovery in the near future
are somewhat dim. Indeed, the inﬂationary
environment is likely to linger and depress
some discretionary spending, which will hit
mid-market retail harder. Furthermore, risinglabour costs and the diﬃculty in acquiring
new staﬀ will have a negative impact on thewider market, and shops may have to resort
to raising wages to attract talent, or shorten
business hours, both of which will aﬀect
proﬁts. Despite these circumstances, otherretail categories, most notably the luxury
sector, discount stores, and daily essentials,
are expected to fare well, meaning that thebifurcation between strong performers andunderperformers looks to linger.
Going forward, despite the ongoingchallenges, the retail sector is nonethelessexpected to steadily recover as footfall in retailareas has increased in the post-pandemic era.
As footfall further improves, even weakerretail segments like the mid-market and F&B
should follow suit. In addition, as the retailassets with prospects of rental increments
strengthen amidst an environment of elevatedinﬂation and interest rates, stable retail assets
oﬀering higher yields, like those in regional
suburban areas, will also probably attract
greater attention from investors.

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

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